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The kaleidoscope spins again; the shards are rearranged; this time, the fragment at the centre is Cyprus. Faced with yet another country needing an urgent bailout (and with the German election looming in September), Eurozone leaders and the IMF have come up with a new wheeze: make savers pay to rescue the banks that were meant to look after their money, in exchange for a bailout of 10 billion euros.

Not unreasonable, you might say: Why should the proverbial German taxpayer cough up for Russian oligarchs and shady foreign businessmen who’ve stashed billions on the island? But the plan will take a cut from everybody’s savings—farmers, pensioners, orphans, oligarchs and oil magnates—on a roughly graded scale. (The proposed levy on accounts under 100,000 euros—which were in theory guaranteed by the Cyprus government—will probably now be reduced from 6.7 percent to 3.5 percent, which reminds me of the sage Nasrudin Hoja’s advice to the man whose house was too small.) Over the weekend Cypriots queued at cash machines; one man drove his bulldozer up to the door of the bank.

As the newly elected government of President Nicos Anastasiades postponed a vote on the plan and closed the banks until Thursday, the blame-shifting began: Was it Anastasiades who sold out the small savers to keep the Russians sweet, or the Troika heavies who showed him the brass knuckles? (Answer: it’s complicated, but there were brass knuckles.) Vladimir Putin weighed in, calling the plan unfair, unprofessional and dangerous. Russia has loaned Cyprus 2.5 billion euros; the EU is hoping it will extend the terms.

Why does all this matter? One, because this is the first time the EU and IMF have decided to take money directly from people’s pockets rather than through the messy process of cutting wages and pensions and putting taxes up. You could perhaps read this as a tacit acknowledgment that austerity has failed, economically as well as politically: it’s messy, it’s unreliable, and it makes people vote for leaders who won’t play the game, like Italy’s Beppe Grillo. You could certainly read it as a sign of how profoundly Europe’s leaders have lost the plot. Though the market meltdown predicted over the weekend hasn’t materialized, howls of derision have issued from bankers and business leaders as well as Cypriot indignados: if guarantees on bank deposits aren’t worth the paper they’re printed on, if people’s savings can be siphoned off by fiat, then the world as we know it, or at least the banking system, will come to an end. (It’s worth remembering here that before the last Greek election a Syriza economist proposed tapping private deposits to fund public investment; he was pilloried as a dangerous radical who would destroy the principle of private property.)

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Two, it matters because with both ends of the economic spectrum lining up against it, the latest Band-Aid offered for the ailing Eurozone looks more and more like a crowbar to help tear it apart. The European Union, a liberal project with the twin goals of preserving peace and solidarity and facilitating commerce, always had opponents on both left and right. As the crisis deepens and peace and solidarity drop out of the equation, those voices are getting louder, not only in Greece and Italy but in Scandinavia, where far-right parties are rising, and in Britain, too. The anti-immigration UK Independence Party beat the Tories to second place in a recent by-election. Cyprus, a former colony, is home to several thousand British retirees; the front page of the Daily Mail today denounces the great eu bank robbery. The financial “contagion” from the Cyprus bailout might be containable; the political fallout will be more problematic.

Three, it matters because the plundering of ordinary people’s savings to bail out the banks lays bare more starkly than before where the real power lies. What price is democracy, when the European Central Bank’s Jorge Asmussen can present an elected European leader with the choice to accept the deposit tax or we will let your banks go under, and your economy too? (And yes, I know that Cyprus has a bloated banking sector; I know its people elected the governments that chose to let this happen; I know it’s a center for money laundering. But so are Switzerland and Luxemburg and the City of London, not to mention—according to the Basel Institute of Governance—Germany.)

Last but not least, it matters because Cyprus matters. Always in the cross-hairs of Great Power rivalries, betrayed by its former colonial masters, pushed and pulled by the politics of its neighbors Greece and Turkey, the island has struggled for decades to shape its own destiny. When the crisis hit Greece a couple of years ago, a Cypriot friend wrote to me, “Don’t bring us down with you, the way you did last time.” She meant 1974, when the junta in power in Athens launched the coup in Cyprus that sparked the Turkish invasion that split the island in two. Cyprus’s fall this time is due in part to its exposure to Greek bonds, which were given a short back and sides last year by the same financial wizards who have hatched this latest plan.

You might be forgiven for thinking that those wizards want the Eurozone to fall apart. But that’s conspiratorial, and gives them too much credit. Like the British in Cyprus the 1950s, they’re trying and failing to juggle their own contradictory interests. And as in the 1950s, it’s the locals who’ll get hurt first.